The monthly S&P500 Emini futures candlestick chart has not had a pullback in 14 months. This has...
Supercharge Your Stop Orders! (Part 4)
10/30/2008 12:01 am EST
Because these traders have now lowered their limit sell entry orders, I am now able to move my own break even stop-loss order to two-and-a-half dollars above the just made swing high-because these new orders will be my new protection! Once again, these orders will act as a buffer if price approaches this level. If I am correct, either price will never make it high enough to test this level or the resting limit sell entry orders will slow or stop price's advance, protecting my stop-loss order hiding several dollars above these orders; if I am wrong, I'll be stopped out for a profit.
You can see that this pattern continued over and over and I took my profits just above $120 a barrel. After staying away from the crude market for a few weeks, I was able to initiate another short position and rode it lower for more than another $45 a barrel using the same techniques.
The key lesson here is using other traders' orders as protection for your own orders. You can hide your orders above limit sell orders or below limit buy orders. These orders may be clustered at a certain area because of prior highs or lows, swing highs or swing lows, Geometric Ratio Levels (most of you call them Fib ratios), or even simple trend lines. But the most important thing is that you need to practice to anticipate where market orders are bunched-both limit entry orders and stop loss orders-and then learn how to use those orders to your advantage. I work with the few traders I mentor one-on-one with market context and anticipating where orders are likely clustered during a part of each session.
These orders are free protection-you need to learn how to use them to your advantage if you want to learn to improve your money management abilities. Money management topics are not as sexy as entry techniques or flashy new indicators, but quality money management can truly make the difference between being a winning trader or being in the majority of traders that open $10,000 accounts and lose all their money within three months.
Take the time to learn to supercharge your stops. It will make a tremendous difference in your trading. Once you begin using technique like these, you'll stop getting "washed and rinsed" at the tops and bottoms of moves by a tick or two; instead, price will get near your stop orders and the majority of the time, turn back towards the trend because the resting limit entry orders protected your stops.
I wish you good trading.
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